A slow and steady climb in the international drill rig count
is driving consumption of oil country tubular goods (OCTG),
especially for premium grades used in offshore drilling.
Some OCTG experts are even predicting a possible surge
in drilling activity abroad thanks to deep offshore plays and
the development of shale gas reserves. Drilling is picking up
in places as diverse as Poland and Argentina. China is looking
to get in on the action, too, with a story from Chinas
official Xinhua News Agency boasting that the country has as
much shale gas as the United States, albeit largely
undevelopedat least for now.
Still, the international scene continues to be driven
primarily by high oil prices and offshore plays, OCTG experts
The international rig count stood at 1,180 in
December, up 62 rigs (5.5 percent) from a year earlier,
according to data from Houston-based oilfield services firm
Baker Hughes Inc., while the U.S. rig count ended the year at
2,007, up 313 rigs (18.5 percent) from December 2010. But
dont let the smaller gain on the international front fool
you. OCTG demand may be booming on plays such as the Bakken
shale in the United States, but energy tubulars also are being
gobbled up at a rapid clip abroad.
Certainly there are some areas that have the
potential to explode, said Kurt Minnich, editor of Tulsa,
Okla.-based Pipe Logix, pegging the value of the
worldwide OCTG market at roughly $20 billion.
Poland, for example, has typically seen only a handful
of wells drilled but could see that number jump to triple
digits, most devoted to recovering shale gas, Minnich said. In
Argentina, too, onshore shale drilling has the potential to
surge thanks to a government that has demonstrated support for
shale drilling and big investments from energy firms that think
the nations shale reserves hold great potential. There
were 11 drill rigs running in Poland in December, all of them
onshore, according to Baker Hughes, while Argentina had 64
rigsalso all onshorein the same
In contrast, Brazil had only 37 land rigs running in
December but 49 offshore rigs. Although far fewer rigs may be
running offshore in Brazil than on shale plays in the United
States, Brazils offshore rigs are far more expensive,
drilling deeper and using more OCTG than an onshore rig in the
United States or even a shallow rig in the Gulf of Mexico,
Minnich said. A shallow well in the Gulf of Mexico may cost
only a few million dollars, while an offshore well in Brazil
costs an average of $22 million and can go as high as $100
million for subsalt plays.
Energy firms in Brazil are looking to recover energy
reserves from below a level of salt deep underwater and beneath
the seafloorsometimes more than 10,000 feet, Minnich
said. The layer of salt makes seismic studies of such plays
difficult, but the potential for premium OCTG suppliers is
great, given that large-diameter OCTG with high-alloy content,
thick walls and premium connections are necessary to operate in
such high pressures and corrosive environments, he
The push to explore deep offshore in Brazil also has
validated Vallourec & Sumitomo Tubos do Brasil Ltda., a new
$1.6-billion joint venture between Frances Vallourec SA
and Japans Sumitomo Metals Industries Ltd. (AMM,
Nov. 10, 2011).
But Minnich cautioned against an overly bullish
outlook for 2012, especially given uncertainty about the extent
of the sovereign debt crisis in Europe and the potential of a
hard landing for the Chinese economy, as well as
the uncertainty associated with the U.S. presidential election.
Any one of those things has the potential to pull the rug
out from under us, he said.
Paul Vivian, principal of tubular market research
company Preston Publishing Co., Ballwin, Mo., said South
America, the Middle East and North Africa were probably some of
the hottest areas for OCTG outside of the United States.
Were seeing not only drilling activity but
theyre also building some new mills, he
ArcelorMittal signed a joint-venture agreement in 2007
with Bin Jarallah Group to build a seamless tube mill in
Jubail, Saudi Arabia. The mill is expected to have a capacity
of 600,000 tons per year, with two-thirds of that production
devoted to OCTG and the rest for line pipe, according to the
steelmakers Web site.
Unlike in the U.S. market, however, much business on
the international OCTG scene is conducted directly between end
users and mills, Vivian said. Most U.S. mills dont see
much demand from the tepid export market, due in large part to
top OCTG mills global presence. That means they can
service North America largely from their North American
production assets and service customers in other areas from
mills closer to them, he said.
Export data from the U.S. Commerce Department suggest
as much. The United States exported just 34,107 tonnes of OCTG
in October 2011. That means that OCTG, one of the top finished
steel product imports in the United States by tonnage, is also
one the countrys smallest steel product exports. And of
the OCTG the United States did export in October, 20,115
tonnesor nearly 59 percentwere shipped to Canada
and another 1,981 tonnes to Mexico.
Internationally, we havent seen anywhere
near the increasethe explosion, reallywhich is what
happened in the U.S. (with OCTG demand), Vivian
For decades, the United States has been worried about
energy reserves within reach of its national boundaries, Vivian
said. That has now been turned upside down because of the
shales. And not long ago, we were talking about how there was a
limit on the amount of oil in the world. Were not hearing
that now, either.
Vivian reasoned that shale drilling would eventually
pick up abroad as well, even in countries such as France that
currently dont allow it. Exactly when is uncertain, and
the pace likely will be slower and the industry more regulated
than it is in the United States, he predicted.
Still, Vivian said he retains a positive outlook for
the international rig count, although he suggested the increase
would be driven in the near term by consistent or ramped-up
activity in the Middle East, North Africa and South America
largely as a result of consistently high oil prices, which
gives energy firms the confidence they need to invest in big
It also doesnt hurt that the international rig
count is more heavily weighted to offshore than the U.S. rig
count. Offshore wells probably use approximately four to five
times as much OCTG as land rigs, Vivian said, and offshore rigs
also use a monstrous amount of tubing just to run
electrical or monitoring equipment for the air cylinders used
to balance the rigs.
In fact, international OCTG demand roughly rivals that
of the United States or is perhaps slightly more, Vivian said.
True, there may be more rigs running in the United States than
are running abroad, but international rigs generally use more
tons of OCTG per rig, he said.
Charles Bradford, president of Bradford Research Inc.,
New York, said that China has the potential to become an
important player on the shale gas scene. They think they
have more shale gas than we have, Bradford said, noting
that Chinese firms also have invested heavily in shale plays in
the United States. They are trying to get the
technological expertise (on shale gas drilling) because they
believe they have a lot (of shale gas).
Bradford also pointed out that while some OCTG mills
in China make questionable product, others are
entirely capable of making excellent material and
China also has made big investments in high-end
seamless pipe mills.
Additionally, its also in Chinas interest
to develop its shale gas reserves in order to reduce the
countrys dependence on imported oil as well as on
domestically produced coal, which emits more pollution than
natural gas, Bradford said. What better way to (reduce
pollution) than develop shale gas, he added, although he
questioned how long it might take China to ramp up to U.S.
shale gas production levels.